Q3FY24 Review: Archean Chemical: Bromine volumes recover

7 Feb 2024 , 02:33 PM

While H1FY24 saw moderation in bromine volumes and realisations, Q3 witnessed volume recovery. Performance of industrial salt was strong while SOP sales continued to gain traction. The story of recovery in bromine prices and shift towards value added products is intact. Bromine derivatives will now play out over FY25-26, as the commissioning will take by H2FY25. Analysts of IIFL Capital Services raise FY24 estimates by 2% while they cut FY25- 26 estimates marginally by 0-4% as they adjust earnings for bromine derivative ramp up. TP rolled over to Mar’25 (from Dec’24) moves up to ₹705 (earlier ₹630). Maintain Buy. 

Bromine volumes recover, realisations remain benign: 

Q3 witnessed handsome recovery in bromine volumes to 5KT (up 25%YoY), however realisation was weak at $2.5/k g (down 46%/16% YoY/QoQ) leading to 32% decline in sales. Salt revenues were up 34% on the back of 18% volume growth and 14% realization growth. Traction in SOP too was healthy with revenues at Rs184mn and volumes at 4.3KT. Thus at consolidated level, higher volumes drove 13% sales growth while lower bromine realisation resulted into 9% decline in Ebitda. 

In pursuit of adding growth levers: 

Successful bidding of Oren Hydrocarbons that is into oil drilling chemicals opens up future growth drivers. Though the management didn’t share much details on this, it opined that with minimal investments of Rs300mn (in addition to liquidation costs of Rs760mn), the company can easily better Oren’s previous peak performance of ₹4.3bn sales and 15% Ebitda margin. The company is actively pursuing other initiatives for driving growth and expanding, and will provide updates once they are finalized. 

Reasonable valuation, positive outlook: 

While bromine prices remain benign, volumes after moderating for last few quarter have picked up. Demand pick up is observed with some clients starting to restock. Thus outlook for next year remains positive as bromine performance is likely to improve given easy base while salt volumes will be steady. Traction in SOP sale is encouraging. Valuation at 10.5x FY26 earnings too remain reasonable for a bulk chemical player like Archean.